2014 Health Care Spending Up, Fueled by Increased Coverage Under ACA

Last year, spending on health care in the US rose at its fastest rate since the 2008 recession, climbing 5.3% to $3.03 trillion, and representing 17.5% of the country's gross domestic product. It's a rise more or less in line with predictions, and one that has a lot to do with expanded health care coverage under the Affordable Care Act (ACA).

In a report published on December 2 in Health Affairs, the Centers for Medicare and Medicaid Services' Office of Actuaries wrote that "the expansion of insurance coverage, particularly through Medicaid and private health insurance, and rapid growth in retail prescription drug spending" fueled the growth, which outpaced the overall economy.

That overall growth translated into a 4.5% per-capita spending increase, which the report further breaks down into 3 factors: changes in the age and sex mix of the population, medical price inflation, and "residual use and intensity"—basically, the amount of health care usage that remains once the effects of age, population, sex, and inflation are removed. Of those 3 factors, residual use was responsible for nearly half of the 4.5% increase, with medical price inflation not far behind at about 40% of the increase. Demographic changes accounted for about 13% of the growth. Bottom line: more people are using more health care, largely due to expanded coverage made available through the ACA, with some analysts theorizing that the lack of insurance created a "pent-up demand" for certain procedures.

In terms of spending by category, prescription drugs shot up by 12.2% in 2014—far and away the most dramatic increase. Hospital care rose by 4.1% last year, compared with 3.5% the year before, and "physician and clinical services" came close to doubling the 2013 rate of increase, from an historically low 2.5% rate in 2013 to a 2014 rate of 4.6%.

The spending increase—and reasons for it—were widely covered in mass market media such as NBC News and the Wall Street Journal(WSJ), and industry-focused media includingModern Healthcare (subscription required). Most reports characterized the rise as not particularly surprising.

According to those articles, while anticipated, the increase leaves some questions unanswered.

In the WSJ report, those questions have to do with whether the ACA is actually fueling or tamping down the rates, and whether the higher-but-still-modest increase is due to greater reliance on out-of-pocket spending from patients, who in turn tend to use less health care.

Modern Healthcare turns to questions about the shift away from fee-for-service payment systems and toward health care based on outcomes, and whether those efforts are making a difference in spending.

"What remains murky from the actuaries' report is whether hospitals, doctors and others in the healthcare delivery system have been removing enough wasteful processes to help control costs," reports Modern Healthcare. "There's also skepticism that providers are shifting quickly away from the fee-for-service system, although some economists are optimistic value-based payments can lower the nation's healthcare expenses."